It does not always work out this way, and the walls of finance companies everywhere are decorated with large numbers of historically interesting but entirely worthless certificates of title. There is no way, other than the surrender of all the certificates in issue, to be reasonably confident that they are backed by an exactly equivalent quantity of gold.
All sorts of things can cause this not to be the case:- Duplicate certificates issued in good faith, deliberate over-issue, good forgeries, bad administration, changes of address, cancellation of old classes of certificates and their replacement, failure to destroy old certificates surrendered, etc. Certificates are capable of being duplicated about as easily as paper money, which is mildly ironic given the modern day bullion buyer's motivation - which is frequently to avoid the debasement of monetary printing.
There is a better way. Using modern technology it is easy to publish every day an accessible list of all gold owners with an interest in a specific vaulted store. Reconciled to an underlying bar list this can provide a reliable proof that the total number of owners can claim an amount of gold exactly equal to the vaulted total. Moreover all investors' holdings can be published using a nickname which is known only to them and which, while validating their own holding to them, does not identify them.
This is how BullionVault proves your gold ownership every day. BullionVault customers see the proof on BullionVault's Daily Audit - published every day and linked directly from the BullionVault home page.
While for those whose attachment to certificates proves insurmountable we provide an RSS feed of their own digital record - re-issued every day to their own computer, under their own private nickname.
Gold certificates are typically unallocated gold with an option to convert into allocated at the investor's option and considerable cost. We do not favor unallocated gold. We consider it an investment structure which provides free capital to the supplier, and risks total loss to the investor.
So before you choose a certificate program make sure you know if the gold is unallocated - it usually is - and make a conscious decision to accept the considerable risks. Where a certificate program permits the conversion from unallocated to allocated the cost of allocating is usually prohibitive - involving a fabrication cost and an ongoing storage cost typically of 1.
This is more than 10 times the wholesale rate for insured bullion storage, and this artificially high rate achieves its primary purpose of keeping the gold unallocated.
As an investor in unallocated gold your gold is on the balance sheet as a liability and you remain exposed to the suppliers' insolvency for the long term. Given the relatively high costs involved there is little likelihood of you choosing to allocate. Depending on the level of confidence which government backing of gold investments inspires in you there may be an exception to the wider pool of unallocated certificated gold schemes.
Certainly the most well-known and most respected of the certificate providers is the Perth Mint Certificate Program. Please Note: This analysis is published to inform your thinking, not lead it. Previous price trends are no guarantee of future performance.
Before investing in any asset, you should seek financial advice if unsure about its suitability to your personal circumstances. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest. SGB is free from issues like making charges and purity in the case of gold in jewellery form.
The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc. There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for.
Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Banks may also provide online application facility. An investor can have only one unique investor Id linked to any of the prescribed identification documents. The unique investor ID is to be used for all the subsequent investments in the scheme.
For holding securities in dematerialized form, quoting of PAN in the application form is mandatory. The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family HUF and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year April — March.
In case of joint holding, the limit applies to the first applicant. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market. The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions. The maximum limit will be applicable to the first applicant in case of a joint holding for that specific application.
The Bonds bear interest at the rate of 2. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
SHCIL and the authorised stock exchanges either directly or through their agents. A customer can apply online through the website of the listed scheduled commercial banks. The nominal value of Gold Bonds shall be in Indian Rupees fixed on the basis of simple average of closing price of gold of purity, published by the India Bullion and Jewelers Association Limited, for the last 3 business days of the week preceding the subscription period.
The price of gold for the relevant tranche will be published on RBI website two days before the issue opens. On maturity, the Gold Bonds shall be redeemed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. Both interest and redemption proceeds will be credited to the bank account furnished by the customer at the time of buying the bond.
The investor will be advised one month before maturity regarding the ensuing maturity of the bond. On the date of maturity, the maturity proceeds will be credited to the bank account as per the details on record. The bond will be tradable on Exchanges, if held in demat form. It can also be transferred to any other eligible investor. The Bonds shall be transferable in accordance with the provisions of the Government Securities Act and the Government Securities Regulations before maturity by execution of an instrument of transfer which is available with the issuing agents.
The Loan to Value ratio will be the same as applicable to ordinary gold loan prescribed by RBI from time to time. Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 43 of Shilpa Medicare investors eye Laurus-like returns, but past capex yet to fire.
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